The New South Wales (NSW) Government has released an Exposure Draft for proposed reforms to the state's workers' compensation scheme. Driven by Treasurer Daniel Mookhey, the proposed changes are framed as ‘essential’ for economic sustainability. Although pitched as a solution to rescue a failing scheme, frontline workers, including nurses, midwives, carers, and other healthcare professionals, are at risk, with reforms posing more harm than good.

As the largest group affected by psychological injuries, these workers may soon face significantly reduced access to vital mental health compensation. At a time when workplace stress is rising and mental health services are under pressure, the reforms could entrench toxic workplace cultures across both the public and private sectors.

Key Changes Proposed in the NSW Workers' Compensation Reform

The draft legislation introduces several cost-saving measures, particularly targeting psychological injury claims:

New Pathway for Bullying Claims: Employees subjected to workplace bullying or harassment must first seek resolution through industrial tribunals, such as the New South Wales Industrial Relations Commission (IRC), before accessing workers' compensation.
Tighter Definitions: The reforms propose a new statutory definition of both "psychological injury" and "reasonable management action”. While designed for clarity, these changes could exclude valid claims arising from high workloads or legitimate performance management practices.
Higher Threshold for Compensation: The impairment threshold for receiving lump-sum compensation due to psychological injury would increase from 15% to 30%. This would disqualify and reduce access to financial support for many affected workers.
Increased Employer Discretion: By shifting more control back to employers, the reforms make it easier for employers to deny or dispute claims, particularly those involving workplace trauma, mental health issues, or chronic stress. However, critics argue that the pendulum has swung too far in favour of employers, raising concerns that vulnerable workers may be unfairly denied support or left without adequate recourse.

Disproportionate Impact on NSW Healthcare & Public Sector Workers

NSW Healthcare professionals are among the most frequent claimants and represent the largest cohort for psychological injuries. Their injuries most commonly stem from:

Bullying and/or harassment by supervisors or peers
Verbal and physical assaults by patients or visitors
Chronic understaffing and unmanageable workloads

By raising legal thresholds and excluding workload-related claims, the proposed reforms risk stripping NSW healthcare and public sector workers of essential protections. These changes contribute to the erosion of safeguards around mental health, despite the daily psychological toll these workers endure in public service. At what point does reform become erosion of care?

The Government’s Position: Is the Scheme Financially Unsustainable?

The Case for Reform – A System Under Strain

Supporters and proponents of the reforms, including Business NSW CEO Daniel Hunter, argue that changes are necessary and urgent to stabilise a system under increasing strain from structural imbalances within the scheme that systematically favour claimants, leading to misuse and escalating financial losses.

The current scheme ran a A$1.8 billion deficit last year—roughly A$5 million per day.²

Hunter has also expressed concern that the scheme is increasingly being diverted from its intended purpose. According to Hunter, many NSW businesses report misuse of the current system, with workers’ compensation being exploited as a means to escalate workplace issues and grievances, often related to or stemming from performance or workplace disputes, rather than addressing genuine injuries.

“We fully support the rights of injured workers to receive care, rehabilitation and fair compensation – that’s why Business NSW helped establish the workers’ compensation scheme more than a century ago.”¹

Hunter advocates for the reintroduction of provisions like Section 11a of the Workers Compensation Act 1987 as a proactive measure to filter and screen out illegitimate claims, particularly those where performance-related grievances are disguised as injury claims, often in retaliation against legitimate performance management.

“Last year alone, the scheme ran a A$1.8bn deficit – around A$5m every day. Injury claims and the associated costs, particularly for psychological claims, are driving the cost of premiums to unacceptable levels.”²

Hunter asserts that establishing oversight mechanisms, clearer definitions, and raising the impairment threshold will help preserve the scheme for future generations, noting, “Now even employees undergoing reasonable performance reviews can receive compensation, inflating the cost of the entire scheme.”²

In contrast, ‘Unions NSW secretary Mark Morey, who gave evidence on Friday, said 95 per cent of workers with a permanent impairment from a psychological injury would not receive compensation due to the proposed 31 per cent threshold.’³ While there is merit in ensuring the scheme’s longevity, critics argue that the changes, driven by financial considerations, swing too far in favour of employers, especially when it comes to psychological harm, which is harder to quantify than physical injury.

A Pattern of Restrictive Reform in NSW

The proposed 2025 amendments reflect a continuing—and concerning—trend:

2012: The O’Farrell Government imposed harsh cuts, reducing access and slashing benefits.
2015 & 2018: The reforms introduced minor improvements to the workers’ compensation scheme; however, fundamental limits on access to benefits, particularly for psychological injuries and long-term claims, persisted.
2023–2025: The Mookhey-led Labor government’s new cost-cutting proposals risk echoing past errors, now framed as sustainable initiatives.

In New South Wales, the long-standing focus on financial balance over fair access continues to place vulnerable workers at risk, including those affected by complex and often invisible psychological injuries. While each wave of reform is framed as a step toward sustainability, the pattern reveals a quiet entrenchment of restrictive measures that risk repeating the mistakes of the past under a new guise.

Psychological Injury: A NSW Crisis of Recognition & Response

Mental health conditions such as PTSD, depression, and anxiety are just as real and debilitating as physical injuries, yet they remain significantly harder to diagnose, treat, and validate. The stigma surrounding psychological injury, combined with delayed intervention and limited access pathways, continues to impact recovery outcomes and reduce return-to-work (RTW) rates for many affected workers.

The statistics are telling: only 50% of New South Wales workers with a psychological injury return to work within 12 months, compared to 95% of those with physical injuries. Despite this, the system currently spends seven times more on maintaining psychological injury claimants outside the workforce than it does on facilitating recovery and reintegration into suitable employment.⁴

Stakeholders have voiced concerns that rather than narrowing access or imposing higher thresholds, greater focus is needed on early intervention, trauma-informed support, and consistent case management across frontline sectors such as healthcare workers and first response emergency services— key industries throughout Sydney and regional New South Wales where workplace stress and exposure to trauma are most acute. Without such measures, psychologically injured workers will continue to be overlooked, and both workers and employers will continue to bear the long-term social and economic costs.

While discussions around workers’ compensation reform in NSW continue, the Government has made it clear that no final decisions will be made until the public has had an opportunity to contribute to the conversation. The current Exposure Draft serves as a starting point for addressing the growing challenges within the scheme, particularly in relation to psychological safety and return-to-work outcomes for vulnerable workers.

Toxic Workplace Culture: A Systemic Issue

No workplace is immune to toxicity—bullying and harassment can happen to anyone, anywhere, from hospitals to Parliament. These behaviours remain a persistent factor in psychological injury claims and have rightly come under scrutiny. After losing his seat in the 2025 federal election, former Greens MP Max Chandler-Mather described Parliament as a “bloody awful” and “miserable” workplace, marked by routine yelling and intimidation, underscoring the deeply entrenched culture of dysfunction at the highest levels of government.⁵ His account underscores what many already know: toxic cultures are not isolated incidents but part of a broader, systemic problem.

In this context, the NSW Government’s move to curtail psychological injury claims sends a deeply troubling message. With federal leaders acknowledging the dysfunction at the highest levels, restricting access to support not only ignores the problem but also risks normalising it. Rather than tackling the systemic causes of workplace harm, the proposed restrictions risk normalising these behaviours and diminishing the mental health support available to workers across the state. If toxicity is tolerated in Parliament, the implication is that workers elsewhere will also endure it.

What Needs to Change?

We acknowledge the need for reform. But changes must:

Be balanced and transparent
Reflect the realities of frontline workers, not just cost models
Uphold access to compensation for psychological harm
Recognise New South Wales’s growing workforce challenges in healthcare, education, and service industries

Stand Up and Be Heard

The proposed reforms are still under parliamentary review. Your voice matters if you live or work in Sydney, Parramatta or Western Sydney.

Here's how you can take action:

Contact your local Member of Parliament (MP) and Members of the Legislative Council (MLCs): Remind them of their responsibility to uphold their commitment to supporting injured workers.
Share your story: Personal experiences can influence policy and help lawmakers understand the real impact of their decisions.
Support unions and community legal centres: Organisations such as the Nurses and Midwives’ Association play a vital role in advocating for fair and safe workplaces.
Stay informed and engaged: Follow the parliamentary inquiry, attend public forums and keep up to date with developments.

Mental health is a fundamental part of workplace safety. As awareness of mental health in the workplace continues to grow, New South Wales should strengthen its support systems rather than prioritising cost savings over care.

In Summary

The New South Wales Government’s proposed reforms to the workers' compensation scheme aim to address financial pressures but have raised significant concerns among healthcare professionals, unions and legal advocates. While the Exposure Draft seeks to ensure economic sustainability, critics argue that the changes risk reducing protections for workers with psychological injuries, particularly those in high-stress public sector roles. With measures that raise legal thresholds, redefine key terms and increase employer discretion, the reforms may disproportionately impact frontline workers already vulnerable to mental health challenges. As public consultation continues, many are calling for a more balanced approach—one that safeguards financial viability without compromising care, fairness or access to support for those injured in the workplace.

How Veritas Law Firm Can Help

Navigating the workers’ compensation system can be confusing and exhausting, more so when you’re already dealing with the effects of a workplace injury. At Veritas Law Firm, we believe you should never have to face this alone. You matter.

If you’ve been affected by bullying, trauma, burnout or denied access to support, we are here to help. We understand the real toll workplace injuries can take on your health, your finances and your future. Our legal team brings the experience and care needed to help you move forward with clarity and confidence.

You have a right to be heard. You have a right to be safe. You have a right to fair compensation and proper medical care. We are committed to helping you access your entitlements under NSW law.

Contact Veritas Law Firm Today

At Veritas Law Firm, we offer personalised legal advice and representation on a no win, no fee† basis, giving you peace of mind as you focus on your recovery. This means you won’t need to worry about upfront legal costs—we only get paid if we successfully secure compensation for you. Contact us today to learn how we can help you achieve the best possible outcome for your case.

Book a Free Consult

We are ready to listen. We are here to support you. You matter.

References & Further Reading:

This article is provided for general informational purposes only and does not constitute legal advice. While every effort is made to ensure the accuracy of the information provided, Veritas Law Firm makes no representations or warranties, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the content. Readers are advised to seek professional legal advice tailored to their specific circumstances before taking any action based on this information. Veritas Law Firm accepts no liability for any loss or damage incurred as a result of reliance on the information presented herein.

NSW Workers' Compensation Reforms: A Step Backward for Psychological Injury Claims